Over the past few months, the demand for used automobiles has been rising, with the difference in prices between new autos and used autos the largest it has been in years. Consequently, as the demand for used cars has increased, so have used car prices, as tracked by the Federal Reserve Bank of St. Louis. Even with the recent price gains, used automobiles are still less expensive than a comparable new automobile.
With nearly 40 million used cars sold last year, the used car market is now twice as large as the new car market. Dealers are finding higher margins on used cars versus new cars, transitioning sales and marketing efforts from new car sales to used car sales.
As auto manufacturers ramped up lease incentives 2-5 years ago, those same cars are now coming back to dealerships and resold as used vehicles. Buyers are finding better values in used cars, most of which are well maintained lease returns with low mileage.
Various factors are contributing an increase to new car prices, including rising loans rates, tariff concerns, and minimal sales incentives. The rise in used car prices on the other hand, is simply a result of an increasing demand for limited supply.
New car prices have steadily risen as manufacturers supplied vehicles with advanced technology and expensive options. A 2-5 year old used car with low miles will have depreciated in price relative to paying full price for a new vehicle with similar features.
Sources: FRED; Federal Reserve Bank of St. Louis
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